IS CALIFORNIA’S HOT ECONOMY CAUSING A HOUSING CRISIS?

Real estate sales continue to bring in massive revenue across the nation. In California, however, a housing crisis is affecting the real estate market and may soon trigger economic issues as well.

The crisis is centered on affordability, as it’s incredibly difficult for those who fall under the middle-class umbrella to find reasonably priced homes and apartments. Around the U.S., the median price for a house is around $250,000. In California, the median is twice as high. As a result, homelessness is on the rise throughout the state.

Developments are still being built at an impressive rate, especially in cities like Los Angeles. However, LA is seeing more and more working-class citizens moving into renovated vehicles and parking their “homes” in remote areas. The same is being seen in Silicon Valley, a region that’s famous for producing wealthy tech workers.

Because of the outrageous home prices, more people are extending their commutes. Heather Lile works at a San Francisco hospital as a nurse and earns a very good living, but she still travels 80 miles to work each day from Manteca. “I make really good money and it’s frustrating to me that I can’t afford to live close to my job,” she says.

As much as residents are bothered by the extreme costs, people living in California are perhaps more fearful for how this crisis might affect the overall economy. Politicians at every level of California’s government are engaged in the housing debate, and a recent push for rent control has been gaining momentum. Meanwhile, many established organizations are coming under fire for upholding zoning regulations that have hampered affordable developments.

The issue is taking center stage at the Capitol, as Sacramento legislators are aiming to take action in communities where neighborhood groups have succeeded in shooting down building projects that could have increased housing availability.

Legislation regarding these issues will likely be voted on before the fall, as Governor Jerry Brown and several head lawmakers have been negotiating a number of proposals and packages were approved by the state Senate.

One of the bill’s sponsors is Democrat Scott Wiener, a San Francisco senator. “The explosive costs of housing have spread like wildfire around the state,” Wiener says. “This is no longer a coastal, elite housing problem. This is a problem in big swaths of the state. It is damaging the economy. It is damaging the environment, as people get pushed into longer commutes.”

Ironically, this potential economic crisis is a direct result of the economic boom California has experienced. Unemployment has dropped steadily and the state is bringing in increased tax revenue. However, economic and population growth are now running head on into the state’s unwillingness to develop in the way experts recommend. People have been heading West for decades in hopes of making California their new home. While housing prices have always fluctuated, the recent financial boom combined with minimal development is resulting in what is seen as one of the worst housing crises in history.

Since the beginning of the economic recovery, prices in major California cities – San Francisco, Los Angeles, San Diego and San Jose – have increased by around 75 percent.

Scott Wiener’s bill is in good company; well over 100 housing measures have been bounced around in California’s Legislature in 2017. Something that sets Mr. Wiener’s bill apart is how it addresses zoning, an issue most see as one of the biggest threats to development. The legislation specifically targets the environmental and procedural protections that have been abused as communities attempt to curb building projects.

Gov. Brown is hoping to negotiate this bill as a part of more sweeping legislation intended to increase housing development for families that are struggling the most. This housing package may also increase the state’s overall spending on housing projects in the state.

While the proposed measures are new, it will not be the first time California’s government has taken steps to encourage local building. Last year, Gov. Brown worked on a measure that would have created a directive for communities to develop reasonably priced housing projects, but strong opposition led to that bill never seeing the light of day. As is often the case, numerous groups with various vested interests objected to the measure. California has a strong caucus of people looking to limit development as a means of protecting the state’s natural allure.

Santa Barbara Mayor Helene Schneider is providing one of the voices of opposition. “It’s giving developers a great gift and not giving residents and voters a chance to cast their opinions about what happens in their own neighborhood.”

Across the state, however, politicians are seeing some sort of governmental intervention as inevitable. As affordability continues to worsen, elected officials are left with few choices. A San Francisco Democrat named David Chiu heads up the Assembly Housing and Community Development Committee, and he believes his colleagues all understand what is at stake. “There is a consensus that there is a crisis and we have to address it.”

Senator Wiener has also been reminding colleagues of the effort that helped Californians address water shortages a few years back. “We’re at a breaking point in California,” says Weiner. “The drought created opportunities to push forward water policy that would have been impossible before. Given the breadth and depth of the housing crisis in many parts of California, it creates opportunities in the Legislature that didn’t exist before.”

In addressing the crisis, lawmakers are being forced to address issues that have long been a part of the state’s development. California’s scenery and vast expanses draw people from all walks of life. Those who live in the state now are always looking to protect those elements. Now there is a strong case against maintaining that protective attitude, as a new generation of California workers who cannot afford to live in the state where they are employed attempt to make their voices heard.

In addition to residents, younger politicians are also joining the cause. Eric Garcetti, the mayor of Los Angeles, has expressed a belief that those who intend to obstruct development are not doing their part in working for the good of all Californians.

Since the last century, there has been a procedure for how housing units are determined and developed, including how many buildings will be made available for low-income families. These rules apply statewide, and the latest legislation will target the cities that have been delaying development through various appeals processes. Some communities have become very adept with how they choose developers and bury projects in red tape.

Mr. Wiener’s bill will target building projects which are already in the works, or have already been approved; developments that need specific permits will still be handled by the respective cities. However, the power to review city plans will enable the government to authorize more projects that can’t be derailed by community organizations.

A project in Los Gatos, not too far from Santa Cruz, offers an example of the behavior Wiener is trying to eliminate. Development was held up for years after the 320-home proposal was rejected by the city. An ensuing lawsuit brought the matter in front of a judge, who ordered the city to resume inspecting the proposal, but this was already years after the project should have been completed.

Cities will also be forced to maximize zoning space, as project are often built too small and end up leaving a dead zone in which no future buildings can be developed.

Nowhere in the United States do first-time buyers have more trouble purchasing a home. California is also one of the worst regions in the country for low-income residents to find any type of housing. This is all true in spite of the fact that California is atop the nation in wages and adjusted poverty rate.

Among the many causes of the affordability crisis is Proposition 13, a 1978 initiative that limited property taxes. The bill created various loopholes for businesses and has had the overall effect of motivating homeowners to stay put and hold on to absurdly low tax rates.

BuildZoom is an enterprise in San Francisco that pairs contractors with prospective homebuyers. The company’s chief economist, Issi Romem, sees a direct correlation between Proposition 13 and a decrease in building. “California is a beautiful place with great weather and a terrific economy. To accommodate all those people you need to build a lot, and the state’s big metro areas haven’t since the early ‘70s,” Issi says. “To catch up, cities would need to build housing in a way that they haven’t in two generations.”

The areas most affected by housing issues are generally coastal regions where land is in short supply. However, studies show that cost is a bigger problem than land scarcity. Since the beginning of the market’s collapse and the recession, California has only built around 300,000 new housing units, which is well below what economists believe the state needs.

“Cities have proven time and time again that they will not follow their own zoning rules,” notes Brian Hanlon, who works as a policy director for a housing commission known as the San Francisco Yimby Party. “It’s time for the state to strengthen their own laws so that advocates can hold cities accountable.

Even with plenty of concrete examples of this accountability problem, city officials are wary of the blowback that might come from community groups if they force development. Residents in small neighborhoods stand in firm opposition to developing new apartment complexes, even if that’s exactly what’s needed to combat affordability issues.

When cities do permit development, it’s often awarded to the wrong projects. In Brisbane, a town south of San Francisco, commercial construction has been encouraged while housing projects have been denied. “We have cities around California that are happy to welcome thousands of workers in gleaming new tech and innovation campuses, and are turning a blind eye to their housing needs,” says David Chiu.

In the eyes of some, San Francisco’s tech industry is ground zero for the untenable housing costs. The boom of Silicon Valley has sent rent prices through the roof and has spawned a heated debate regarding commuter issues and gentrification. Berkeley City Councilwoman Lori Droste is one of many elected officials trying to combat this problem. “Cities that deny housing are contributing to skyrocketing rents, unfair evictions and homelessness.”

While no one is denying the need to address the crisis, plenty still stand in opposition to the bill sponsored by Scott Wiener. Many legislators believe that this law will put too much power in the hands of the government while giving cities less authority and hampering the ability for small communities to maintain their identity.

Santa Rosa Mayor Chris Coursey sides with his constituents. “People here feel like this is a special place, like people in any town or city do. And they want decisions about the future of the community to be made by people in the community who they can actually talk to about this.”

In Southern California, State Assemblyman Richard Bloom doesn’t see his community in Santa Monica trying to block new housing projects. “More and more people are becoming well aware that we have a housing affordability crisis on our hands,” Coursey says. “The issue is just reaching critical mass with the Legislature and the public.”

While elected representatives and community members work to find a middle ground, it remains unclear as to how these pressing issues can be resolved. The only certainty is that a problem exists and it must be addressed quickly. If the housing crisis continues to grow, it will soon lead to greater crises throughout the state.

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